2007 OASDI Trustees Report

VI. APPENDICES

A. HISTORY OF OASI AND DI TRUST FUND OPERATIONS

The Federal Old-Age and Survivors Insurance (OASI) Trust Fund was established on January 1, 1940, as a separate account in the United States Treasury. The Federal Disability Insurance (DI) Trust Fund, another separate account in the United States Treasury was established on August 1, 1956. All the financial operations of the OASI and DI programs are handled through these respective funds. The Board of Trustees is responsible for overseeing the financial operations of these funds. The following paragraphs describe the various components of trust fund income and outgo. The tables at the end of this section present the historical operations of the separate trust funds since their inception, as well as the operations of the combined trust funds during the period when they have co-existed.

The primary receipts of these two funds are amounts appropriated to each of them under permanent authority on the basis of contributions payable by workers, their employers, and individuals with self-employment income, in work covered by the OASDI program. All employees, and their employers, in covered employment are required to pay contributions with respect to their wages. Employees, and their employers, are also required to pay contributions with respect to cash tips, if the individual's monthly cash tips amount to at least $20. All self-employed persons are required to pay contributions with respect to their covered net earnings from self-employment. In addition to paying the required employer contributions on the wages of covered Federal employees, the Federal Government also pays amounts equivalent to the combined employer and employee contributions that would be paid on deemed wage credits attributable to military service performed between 1957 and 2001 if such wage credits were covered wages.

In general, an individual's contributions, or taxes, are computed on wages or net earnings from self-employment, or both wages and net self-employment earnings combined, up to a specified maximum annual amount. The contributions are determined first on the wages and then on any net self-employment earnings, such that the total does not exceed the annual maximum amount. An employee who pays contributions on wages in excess of the annual maximum amount (because of employment with two or more employers) is eligible for a refund of the excess employee contributions.

The monthly benefit amount to which an individual (or his or her spouse and children) may become entitled under the OASDI program is based on the individual's taxable earnings during his or her lifetime. For almost all persons who first become eligible to receive benefits in 1979 or later, the earnings used in the computation of benefits are indexed to reflect increases in average wage levels.

The contribution, or tax, rates applicable under current law in each calendar year and the allocation of these rates between the OASI and DI Trust Funds are shown in table VI.A1.1 The maximum amount of earnings on which OASDI contributions are payable in a year, which is also the maximum amount of earnings creditable in that year for benefit-computation purposes, is called the contribution and benefit base. The contribution and benefit base for each year through 2006 is also shown in table VI.A1.

1In 1984 only, an immediate credit of 0.3percent of taxable wages was allowed against the OASDI contributions paid by employees, which resulted in an effective contribution rate of 5.4percent. The appropriations of contributions to the trust funds, however, were based on the combined employee-employer rate of 11.4percent, as if the credit for employees did not apply. Similar credits of 2.7percent, 2.3percent, and 2.0percent were allowed against the combined OASDI and Hospital Insurance (HI) contributions on net earnings from self-employment in 1984, 1985, and 1986-89, respectively. Beginning in 1990, self-employed persons are allowed a deduction, for purposes of computing their net earnings, equal to half of the combined OASDI and HI contributions that would be payable without regard to the contribution and benefit base. The OASDI contribution rate is then applied to net earnings after this deduction, but subject to the OASDI base.

All contributions are collected by the Internal Revenue Service and deposited in the General Fund of the Treasury. The contributions are immediately and automatically appropriated to the trust funds on an estimated basis. The exact amount of contributions received is not known initially because the OASDI and HI contributions and individual income taxes are not separately identified in collection reports received by the Internal Revenue Service. Periodic adjustments are subsequently made to the extent that the estimates are found to differ from the amounts of contributions actually payable as determined from reported earnings. Adjustments are also made to account for any refunds to employees (with more than one employer) who paid contributions on wages in excess of the contribution and benefit base.

Beginning in 1984, up to one-half of an individual's or couple's OASDI benefits was subject to Federal income taxation under certain circumstances. Effective for taxable years beginning after 1993, the maximum percentage of benefits subject to taxation was increased from 50 percent to 85 percent. The proceeds from taxation of up to 50 percent of benefits are credited to the OASI and DI Trust Funds in advance, on an estimated basis, at the beginning of each calendar quarter, with no reimbursement to the general fund for interest costs attributable to the advance transfers.2 Subsequent adjustments are made based on the actual amounts as shown on annual income tax records. The amounts appropriated from the General Fund of the Treasury are allocated to the OASI and DI Trust Funds on the basis of the income taxes paid on the benefits from each fund.3

Another source of income to the trust funds is interest received on investments held by the trust funds. That portion of each trust fund which is not required to meet the current cost of benefits and administration is invested, on a daily basis, primarily in interest-bearing obligations of the U.S. Government (including special public-debt obligations described below). Investments may also be made in obligations guaranteed as to both principal and interest by the United States, including certain Federally sponsored agency obligations that are designated in the laws authorizing their issuance as lawful investments for fiduciary and trust funds under the control and authority of the United States or any officer of the United States. These obligations may be acquired on original issue at the issue price or by purchase of outstanding obligations at their market price.

The Social Security Act authorizes the issuance of special public-debt obligations for purchase exclusively by the trust funds. The Act provides that the interest rate on new special obligations will be the average market yield, as of the last business day of a month, on all of the outstanding marketable U.S. obligations that are due or callable more than 4 years in the future. The rate so calculated is rounded to the nearest one-eighth of one percent and applies to new issues in the following month. Beginning January 1999, in calculating the average market yield rate for this purpose, the Treasury incorporates the yield to the call date when a callable bond's market price is above par.

Although the special issues cannot be bought or sold in the open market, they are nonetheless redeemable at any time at par value and thus bear no risk of fluctuations in principal value due to changes in market yield rates. Just as in the case of marketable Treasury securities held by the public, all of the investments held by the trust funds are backed by the full faith and credit of the U.S. Government.

Income is also affected by provisions of the Social Security Act for (1) transfers between the General Fund of the Treasury and the OASI and DI Trust Funds for any adjustments to prior payments for the cost arising from the granting of noncontributory wage credits for military service prior to 1957, according to periodic determinations; (2) annual reimbursements from the General Fund of the Treasury to the OASI Trust Fund for any costs arising from the special monthly cash payments to certain uninsured persons-i.e., those who attained age 72 before 1968 and who generally are not eligible for cash benefits under other provisions of the OASDI program; and (3) the receipt of unconditional money gifts or bequests made for the benefit of the trust funds or any activity financed through the funds.

The primary expenditures of the OASI and DI Trust Funds are for (1) OASDI benefit payments, net of any reimbursements from the General Fund of the Treasury for unnegotiated benefit checks, and (2) expenses incurred by the Social Security Administration and the Department of the Treasury in administering the OASDI program and the provisions of the Internal Revenue Code relating to the collection of contributions. Such administrative expenses include expenditures for construction, rental and lease, or purchase of office buildings and related facilities for the Social Security Administration. The Social Security Act does not permit expenditures from the OASI and DI Trust Funds for any purpose not related to the payment of benefits or administrative costs for the OASDI program.

The expenditures of the trust funds also include (1) the costs of vocational rehabilitation services furnished as an additional benefit to disabled persons receiving cash benefits because of their disabilities where such services contributed to their successful rehabilitation, and (2) net costs resulting from the provisions of the Railroad Retirement Act which provide for a system of coordination and financial interchange between the Railroad Retirement program and the Social Security program. Under the latter provisions, transfers between the Railroad Retirement program's Social Security Equivalent Benefit Account and the trust funds are made on an annual basis in order to place each trust fund in the same position in which it would have been if railroad employment had always been covered under Social Security.

The net worth of facilities and other fixed capital assets is not carried in the statements of the operations of the trust funds presented in this report. This is because the value of fixed capital assets is not available in the form of a financial asset redeemable for the payment of benefits or administrative expenditures, and therefore is not considered in assessing the actuarial status of the trust funds.

1Includes payments from the General Fund of the Treasury to the trust funds (1) in 1947-51 and in 1966 and later, costs of noncontributory wage credits for military service performed before 1957; (2) in 1971-82, costs of deemed wage credits for military service performed after 1956; and (3) in 1968 and later, costs of benefits to certain uninsured persons who attained age 72 before 1968. Differences in past year total income and sum of individual column amounts are due to these payments. OASI historical payments from the General Fund of the Treasury may be found on the Internet at www.socialsecurity.gov/OACT/STATS/table4a1.html.

2Beginning in 1983, includes transfers from the General Fund of the Treasury representing contributions that would have been paid on deemed wage credits for military service in 1957 through 2001, if such credits were considered to be covered wages.

3Net interest includes net profits or losses on marketable investments. Beginning in 1967, administrative expenses are charged to the trust fund on an estimated basis, with a final adjustment, including interest, made in the following fiscal year. The amounts of these interest adjustments are included in net interest. For years prior to 1967, a description of the method of accounting for administrative expenses is contained in the 1970 Annual Report. Beginning in October 1973, the figures shown include relatively small amounts of gifts to the fund. Net interest for 1983-86 reflects payments from a borrowing trust fund to a lending trust fund for interest on amounts owed under the interfund borrowing provisions. During 1983-90, interest paid from the trust fund to the general fund on advance tax transfers is reflected. The amount shown for 1985 includes an interest adjustment of $88million on unnegotiated checks issued before April 1985.

4Beginning in 1966, includes payments for vocational rehabilitation services furnished to disabled persons receiving benefits because of their disabilities. Beginning in 1983, amounts are reduced by amount of reimbursement for unnegotiated benefit checks.

5The "Trust fund ratio" column represents assets at the beginning of a year as a percentage of expenditures during the year. For years 1984-90, assets at the beginning of a year include January advance tax transfers.

1Includes payments from the General Fund of the Treasury to the trust funds (1) beginning in 1966 and later, costs of noncontributory wage credits for military service performed before 1957 and (2) in 1971-82, costs of deemed wage credits for military service performed after 1956. Differences in past year total income and sum of individual column amounts are due to these payments. DI historical payments from the General Fund of the Treasury may be found on the Internet at www.socialsecurity.gov/OACT/STATS/table4a2.html.

2Beginning in 1983, includes transfers from the General Fund of the Treasury representing contributions that would have been paid on deemed wage credits for military service in 1957 through 2001, if such credits were considered to be covered wages.

3Net interest includes net profits or losses on marketable investments. Beginning in 1967, administrative expenses are charged to the trust fund on an estimated basis, with a final adjustment, including interest, made in the following fiscal year. The amounts of these interest adjustments are included in net interest. For years prior to 1967, a description of the method of accounting for administrative expenses is contained in the 1970 Annual Report. Beginning in July 1974, the figures shown include relatively small amounts of gifts to the fund. Net interest for 1983-86 reflects payments from a borrowing trust fund to a lending trust fund for interest on amounts owed under the interfund borrowing provisions. During 1983-90, interest paid from the trust fund to the general fund on advance tax transfers is reflected. The amount shown for 1985 includes an interest adjustment of $14.8million on unnegotiated checks issued before April 1985.

4Beginning in 1966, includes payments for vocational rehabilitation services furnished to disabled persons receiving benefits because of their disabilities. Beginning in 1983, amounts are reduced by amount of reimbursement for unnegotiated benefit checks.

5The "Trust fund ratio" column represents assets at the beginning of a year as a percentage of expenditures during the year. For years 1984-90, assets at the beginning of a year include January advance tax transfers.

1Includes payments from the General Fund of the Treasury to the trust funds (1) beginning in 1966 and later, costs of noncontributory wage credits for military service performed before 1957; (2) in 1971-82, costs of deemed wage credits for military service performed after 1956; and (3) in 1968 and later, costs of benefits to certain uninsured persons who attained age 72 before 1968. Differences in past year total income and sum of individual column amounts are due to these payments. OASDI historical payments from the General Fund of the Treasury may be found on the Internet at www.socialsecurity.gov/OACT/STATS/table4a3.html.

2Beginning in 1983, includes transfers from the General Fund of the Treasury representing contributions that would have been paid on deemed wage credits for military service in 1957 through 2001, if such credits were considered to be covered wages.

3Net interest includes net profits or losses on marketable investments. Beginning in 1967, administrative expenses are charged to the trust funds on an estimated basis, with a final adjustment, including interest, made in the following fiscal year. The amounts of these interest adjustments are included in net interest. For years prior to 1967, a description of the method of accounting for administrative expenses is contained in the 1970 Annual Report. Beginning in October 1973, the figures shown include relatively small amounts of gifts to the funds. Net interest for 1983-86 reflects payments from a borrowing trust fund to a lending trust fund for interest on amounts owed under the interfund borrowing provisions. During 1983-90, interest paid from the trust funds to the general fund on advance tax transfers is reflected. The amount shown for 1985 includes an interest adjustment of $102.8million on unnegotiated checks issued before April 1985.

4Beginning in 1966, includes payments for vocational rehabilitation services furnished to disabled persons receiving benefits because of their disabilities. Beginning in 1983, amounts are reduced by amount of reimbursement for unnegotiated benefit checks.

5The "Trust fund ratio" column represents assets at the beginning of a year as a percentage of expenditures during the year. For years 1984-90, assets at the beginning of a year include January advance tax transfers.

7Reflects offset for repayment from the OASI Trust Fund of amounts borrowed from the HI Trust Fund in 1982. The amount repaid in 1985 was $1.8billion; in 1986, the amount was $10.6billion.

Note: Totals do not necessarily equal the sums of rounded components.

Tables VI.A5 and VI.A6 show the total assets of the OASI Trust Fund and the DI Trust Fund, respectively, at the end of each calendar year 2005 and 2006. These assets are separated by interest rate and year of maturity. Assets grouped with multiple years of maturity are distributed evenly across those years. Bonds issued to the trust funds in 2006 had an interest rate of 5.125 percent, compared with an interest rate of 4.125 percent for bonds issued in 2005.

Table VI.A5.-Assets of the OASI Trust Fund, End of Calendar Years 2005 and 2006

1Negative figures represent an extension of credit against securities to be redeemed within the following few days.

Note: Amounts of special issues are shown at par value. Special issues are always purchased and redeemed at par value. Where equal amounts mature in two or more years at a given interest rate, they are grouped.

Table VI.A6.-Assets of the DI Trust Fund, End of Calendar Years 2005 and 2006

1Negative figures represent an extension of credit against securities to be redeemed within the following few days.

Note: Amounts of special issues are shown at par value. Special issues are always purchased and redeemed at par value. Where equal amounts mature in two or more years at a given interest rate, they are grouped.

1 The contribution rates for the Hospital Insurance (HI) program, and for the OASDI and HI programs combined, are shown in table VI.F1.

2The additional tax revenues resulting from the increase to 85percent are transferred to the HI Trust Fund.

3 A special provision applies to benefits paid to nonresident aliens. Under Public Law 103-465, effective for taxable years beginning after 1994, a flat-rate tax, usually 25.5percent, is withheld from the benefits before they are paid and, therefore, remains in the trust funds. From 1984 to 1994 the flat-rate tax that was withheld was usually 15percent.